"What the hell is this, DeFi firms must be in fear right now?"
Unbeknownst to us, the United States (US) Senate plans to regulate the cryptocurrency market through a new bill that will impose strict anti-money laundering (AML) on decentralized finance (DeFi) protocols.
Reportedly, the Crypto-Asset National Security Enhancement Act of 2023 which is a bipartisan bill would require DeFi protocols to impose controls on their user base just like banks.
So here it can be seen that the bill needs to be applied by anyone who controls the DeFi protocol or provides applications to use the protocol.
However if no one controls the DeFi protocol, then as a backstop* those who invested more than $25 million in developing the protocol should also fit the bill.
*A financial arrangement where a secondary source of funds is created if the primary source of funds does not meet the required requirements.
As such, all DeFi firms should review and collect information about their customers, maintain an AML program, report suspicious activity to the government and prevent blocked individuals from using their protocol.
In addition to wanting to prevent money laundering, the bill also aims to deal with the increase in crypto-facilitated crimes** that can pose various threats to the country.
**Criminals use digital technology to launder money, sell drugs or weapons, etc.
In context, the DeFi protocol is a financial application that allows anyone with a crypto wallet to borrow or trade digital assets through smart contracts.
However, it should be noted that it may be difficult to control compared to centralized crypto exchanges such as Coinbase that can operate directly on the blockchain without requiring any permission.
